Now, more than ever, organisations are focusing on putting cash to work in order to reduce their cost of debt, minimise bank fees and increase revenue. Barrington analysts observe that businesses with a consistent focus on cash are less prone to severe cost cutting measures caused by ongoing Covid lockdowns and restrictions. These businesses will also be better placed to respond rapidly to an economic uptick. In successful organisations, a strong cash culture comes from the top and is instilled as a priority down the ranks.

Four signs of a successful cash culture

• Daily cash reports are the norm with interrogation and consistent analysis of variance seen as part of business as usual.  There’s clear visibility across opening and closing balances for all domestic and overseas accounts.
• KPIs are set around cash collection, minimum balances on non-interest-bearing accounts, and effective pools or sweeping structures.
• Redundant bank accounts are closed promptly.
• Bank fees are actively minimised.

Intelligent use of cash

Making the most of what you’ve got may have overtones of a 1950’s guide to home-making, however sensible steps taken now could release cash or debt, reduce cost of debt, or create space in banking facilities. Operating with a practical cash buffer that accurately matches forecast needs also frees up cash that would be better used elsewhere. Putting cash to use intelligently can create significant monthly savings and reduce business reliance on cost cutting measures that could have a negative longer-term effect.

Barrington Head of Treasury Services, Dean Sharrar, points out that process improvements to enhance cash management and liquidity do not necessitate a change in banking partners – or create excessive additional work for staff members.  Small steps can lead to material improvements in organisational financial health.

Misapprehension derails moves to strengthen cash management

“CFOs can be reluctant to sign off on cash management and liquidity projects due to an idea that the process will be time or resource intensive, and that the outcome will require a change of banking partners. This is rarely the case.”

Head of Treasury at Barrington, Dean Sharrar, notes that the benefits of strengthening cash management far outweigh the effort required to conduct a review and implement process changes.  Debt and interest reduction, improved yields on short-term investments and an improved daily cash and liquidity operational model are some of the commonly delivered positive outcomes.

“Small steps can lead to material improvements to your organisation’s financial health.  In an economic climate where the vast majority of businesses are looking to reduce cost, this is a prudent way of gaining liquidity without shedding staff or assets that could jeopardise a rapid response to economic recovery.”

Barrington Treasury Services has devised a ‘bite size’ process to move through an initial diagnostic to assess whether further, more detailed analysis is likely to reveal worthwhile outcomes – providing, first up, insights and observations around cash positioning.

‘Bite-sized’ steps improve cash management

Treasurers can gain a more sustainable improvement in their balance sheet through a review of organisational cash management and liquidity.  Barrington analysts can quickly return an overview of potential gains, before recommending straightforward process improvements and an implementation roadmap.

To get a review underway, Barrington Treasury analysts need the following information:

• Organisation structure.
• A list of accounts (including foreign currency accounts).
• Reporting showing historical daily balances per account (across the past 12-24 months) – preferably including daily outflows and inflows.
• Short-term loan and/or overdraft limits and cost (line fee, applicable base rate, and margin).
• Cashflow forecast structure.

How trapped is your cash?

Gaining clarity on your cash position across multiple offshore bank accounts can help to ensure that excess cash is leveraged to reduce debt, rather than sitting idle earning minimal interest. Every day, this cash is failing to live up to its potential to reduce cost for organisations.

“Many organisations working across multiple countries and currencies can find themselves tripping up on trapped cash. Small steps can lead to material improvements to your organisation’s financial health,” comments Dean Sharrar.

Recent cash and liquidity reviews conducted by the Barrington team have led to recommendations that delivered:

• Strategic and tactical measures to reduce debt and interest payments.
• Dynamic liquidity forecasting, improving yield on short-term investments.
• A redesign of liquidity structure aligned to improving daily cash and liquidity operational models.

The Barrington Treasury team has the expertise and experience to simplify leveraging cash to reduce cost of debt, minimise bank fees and increase revenue.  If you, or your Board or Council, are interested in investigating opportunities within your organisation, please talk to your advisor at the next treasury strategy meeting or call Dean Sharrar on 1800 425 079 or email d.sharrar@barringtontreasury.com